Russia’s Corruption Snapshot: Three Days in May

04 Jun 2017

Russia

Creating a Resilient Organisation

Russia/CIS Riskwatch - Issue 12 - June 2017

Russia’s Corruption Snapshot: Three Days in May

The Russian government has made numerous attempts to snatch back the anti-corruption agenda from Putin’s critics, using the arrest and prosecution of high-profile officials as proof that the state is cracking down. These moves have had little effect on the ‘entrepreneurial climate’ here; global anti-corruption watchdog Transparency International ranks Russia 131 out of 176 countries for businesses’ perceptions of corruption, alongside Iran but below Sierra Leone and Paraguay. The arrests of government officials, governors and mayors, followed by bombastic media campaigns displaying their shocking ill-gotten gains, have not reassured the business community. Observers who follow these issues closely instead see that the anti-corruption crackdowns are inconsistent, often politically driven, stem from personal vendettas and regularly ensnare the law enforcement and security officials tasked with fighting corruption. Control Risks looks at this activity on several levels – from regulatory to institutional to political – and helps our clients navigate real and perceived corruption risks. A media snapshot below, from three randomly chosen consecutive days last month, is a good example of how controversial and inconsistent the government’s anti-corruption effort is.

22 May

In a spat between ‘official’ and ‘popular’ warriors against corruption, Vasily Piskarev, the head of the State Duma (lower house of parliament) Committee on Security and Countering Corruption, asked the prosecutor general’s office to investigate Ilya Shumanov, the head of the Russian branch of Transparency International, on allegations of blackmailing and threatening Piskarev’s Duma colleague, Natalya Poklonskaya. Shumanov had tweeted that he would consider investigating Polonskaya, a former prosecutor in Crimea, after she called for a corruption probe into the TI branch in Russia and Alexey Navalny’s Fund to Fight Corruption (known by its Russian acronym, FBK). The two groups consistently expose corruption among top Russian officials.

On the same day, the same Duma Committee recommended that lawmakers reject a bill allowing the confiscation of property of relatives of those convicted of crimes of corruption.

23 May

Ivan Karnilin, mayor of Nizhny Novgorod, Russia’s fifth-largest city, stepped down from his post. In December 2016, Navalny’s FBK had disclosed that Karnilin’s family owned two apartments in Miami, Florida, worth a total of $1.9m. Karnilin had not listed these apartments in his property declarations as required by law. In April, Russian business daily Kommersant reported that Karnilin had met with the top federal officials in Moscow to “discuss his future.” Shortly after that meeting, he resigned.

A court in central Russia’s Voronezh region refused to dismiss the head of a local district administration, Pavel Ponomaryov, from his post, despite a request to do so filed by the Investigative Committee (a Russian analogue of the FBI). Ponomaryov confessed to pressing a local businessman to donate $8,000 for repair works on a local church. When the businessman refused, Ponomaryov ordered that the street entrance to his shop be blocked by concrete blocks until the businessman paid.

A Moscow district court ordered the arrest of all property belonging to Viktor Zakharchenko, the father of Dmitry Zakharchenko, a former head of the anti-corruption department in the federal interior ministry. In September 2016, Dmitry Zakharchenko was arrested on suspicion of receiving a $800,000 bribe. Over $150,000,000 in cash was found in his sister’s Moscow apartment.

24 May

Moscow police chief Oleg Baranov fired four top commanders of the department that investigates crime at so-called ‘sensitive sites’, including space industry facilities, in the Russian capital. The purge was triggered by a Federal Security Service (FSB) probe into the fifth-highest ranking officer of the department, Maxim Rybkin, who is suspected of extorting $400,000 from a company investigated by his department in exchange for closing the investigation. Every officer in the police department has been subjected to a polygraph test since Rybkin’s arrest in April.

Russia’s interior ministry announced it had reviewed corruption allegations against Prime Minister Dmitry Medvedev that the FBK published in a video. The video, ‘On vam ne Dimon’ (‘He’s not your Dima’), which has been viewed over 20 million times on YouTube alone and triggered nationwide protests at the end of March. The FBK claimed that Medvedev and his associates had built a private fortune, including mansions, estates and even a Tuscan winery, using a network of fake charitable organisations backed by donations from business tycoons. According to the ministry, none of the facts reported in the investigation constitutes corruption. Last month, a Communist State Duma deputy, Valery Rashkin, had requested that the FSB investigate claims made in Navalny’s investigation. The FSB gave a classified response that has not been published.

A criminal case was launched by the Investigative Committee against a former senior police investigator serving in the anti-corruption unit in the city of Krasnodar in southern Russia. The officer is alleged to have initiated an investigation into a local company and then demanded a bribe of $7,000 to close the investigation. The head of the company complained to the FSB and the anti-corruption investigator was arrested in April.
And finally, in a critical second reading, the State Duma unanimously voted for a bill to create an official, publicly available list of former officials dismissed from jobs for corruption. People from this list will not get government jobs, according to the bill.

In this Newsletter we talk about the ongoing corruption investigations in Saudi Arabia, the cost of readiness vs the impact of failure, conflict scenario in the Korean peninsula and risks from engaging with third parties.

In this issue, we also discuss two East African countries that are likely to see strong economic activity in the coming months, despite scepticism around them. In Sudan, major improvements in the business environment are beckoning as permanent sanctions removal appears increasingly likely.